Why is GBTC Grayscale dropping 45% against Bitcoin (BTC)?

Institutional instruments for investing in cryptocurrencies are no longer as popular as they used to be. The Grayscale Bitcoin Trust (GBTC) is showing a record -45% discount to Bitcoin (BTC), with which it is believed to be correlated. Apart from the bear market, what are the reasons behind this decline? What are the risks in the cryptocurrency market? We explain to you.

GTBC from Grayscale at 45% off

Currently, the cryptocurrency market is under threat. The Grayscale Bitcoin Trust (GBTC), considered the largest cryptocurrency investment vehicle dedicated to institutional players, appears to be in a bad state and could collapse.

Although GBTC is supposedly correlated with Bitcoin (BTC), it currently has a 45% discount and even broke the 50% mark on Monday morning. It continues to print lows for several weeks. Specifically, this asset is considered discount when its price is below NAV (net asset value, here bitcoin), and premium when it is above.

GBTC rebate continues to expand

Launched in September 2013, GBTC is a security that offers investors the opportunity to access Bitcoin without actually buying it. Money from institutional players is collected and used to buy bitcoins, which are then held in a fund owned by Grayscale.

In other words, bitcoins are held not by investors, but by shades of gray. Faced with the recent drop in GBT, many people have begun to question Grayscale’s good governance, hinting that the company will not actually hold bitcoin.

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Does Grayscale really hold BTC?

This is the question everyone is asking right now: Does Grayscale really own their bitcoins? For information, the company should keep 634,000 BTC, or $10.2 billion at the current price. If this were not the case, this would obviously be a disaster, since the risk of infection in the market is huge.

The company responded this Friday, November 18, in a statement titled “Safety, Security and Transparency,” also posted on Twitter as a thread. The company wanted to reassure its investors:

“Grayscale’s digital asset vaults are secure. The balances are reflected in historical public records and have been assessed by our third party auditors. »

However, these words did not convince, on the contrary. Indeed, Grayscale does not want to publicly disclose the addresses where bitcoins are stored, for “security reasons” that are hard to justify. It didn’t take long to set things on fire.

Despite investor persistence for several days, Grayscale confirmed on Monday morning that it would not release the addresses of its portfolios. Hours later, Coinbase Custody explained that it regularly verifies the assets held by Grayscale through online verification. Not sure if this protection is enough to calm the storm.

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Genesis, CoinDesk, Grayscale: Dangerous Liaisons

This difficult situation for Grayscale as a whole is part of a major crisis that Genesis Trading is currently experiencing. The company, which has already struggled since the collapse of Three Arrows Capital (3AC), recently put its withdrawals on hold due to its own exposure to FTX (worth $175 million).

Except that Genesis Trading, like Grayscale (and Coindesk, by the way), is part of the Digital Currency Group run by Barry Silbert. According to some rumors, these two entities could potentially carry out some operations to save Genesis, putting the Greyscale in an uncomfortable position.

But it would go even further. As explained earlier, institutional clients have been reducing their exposure to cryptocurrencies for several months by selling their GBTC (at a percentage loss since it has a discount).

This phenomenon is all the more marked by the fall of some large organizations, such as 3AC or BlockFi, who had to sell 100% of their positions in Grayscale.

However, it appears that the Digital Currency Group has made the decision to buy back GBTC on its own, taking advantage of the reduction but without changing the Bitcoin supply. A manipulation that makes the DCG group the largest holder of its own investment product.

Grayscale DGC Bloomberg

Grayscale Bitcoin Trust (GBTC) Major Investors Table

However, despite these various transactions, the GBTC price was not supported. On the contrary, it continues to fall and at the same time pulls down the positions of the DCG group. However, faced with the turmoil of Genesis, the group must find $1 billion.

In the current environment, it is hard to imagine that investors would be inclined to lend this amount to DCG. In other words, they will certainly have to sell their GBTC, blaming the passage for huge losses. Obviously, this could cause Bitcoin’s price to plummet and drop below $10,000.

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Grayscale challenges the SEC

Earlier this year, Grayscale attempted to transform GTBC into an exchange-traded fund (ETF), a similar investment vehicle that can be traded on an exchange and tracks the price of a basket of one or more assets.

The Grayscale Bitcoin ETF offering, in particular, would allow institutional players to buy back their shares, which would affect the number of shares outstanding and gradually reduce the price difference between GBTC and BTC.

But all attempts by Grayscale have been blocked by the US Securities and Exchange Commission (SEC), which has so far eliminated all “spot” ETFs (linked to the market price of bitcoin). Conversely, the US financial authority only allows futures ETFs (linked to derivative contracts for the future price of bitcoin).

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Source: YCharts, grayscale report.

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